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TMI Blog2018 (10) TMI 1020X X X X Extracts X X X X X X X X Extracts X X X X ..... ebt written off - Held that:- We set aside the order of Ld. CIT(A) and restore the issue to the A.O. to verify whether the assessee had actually written off the bad debts and decide the issue afresh. Addition in respect of provision for Police Welfare Community Hall - Held that:- We find that the Ld. CIT(A) has given finding on fact that the decision relate to earlier year. However, we are of the view that the earlier decision taken in earlier year and the work executed in another year would be sufficient to allow expenditure in the year when it was actually incurred. We therefore restore this issue to the assessing officer to verify whether any expenditure was incurred in the nature of revenue expenditure and decide accordingly. Allowability of provision of cost or run expenditure - Held that:- CIT(A) disallowed this provision on the ground that it does not relate to the year under appeal. Considering the totality of the facts, we deem it proper and restore this issue to the file of the A.O. to verify whether any expenditure related to this year was incurred in the nature of escalation of cost and decide accordingly. Disallowance of contingency expenses - Held that:- CIT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... L BHARAT, J.M: This bunch of 6 appeals, five by assessee and one by revenue are pertaining to the assessment years 2008-09, 2010-11, 2011-12, 2012-13 2013-14. First we take up the cross appeals by the assessee and revenue pertaining to the assessment year 2008-09. ITA No.383/Ind/2013 (A.Y. 2008-09): 2. The assessee has raised following grounds of appeal: 1. That on the facts and in the circumstances of the case and in law, the findings of learned CIT(A) are bad and opposed to facts, equity and law and are, therefore, unsustainable in law. 2. That on the facts and in the circumstances of the case and in law, the learned A.O. erred in making a scrutiny assessment u/s 143(3) of the Act. 3. That on the facts and in the circumstances of the case and in law, the learned A.O. erred in disallowing expenses of ₹ 1,91,56,000/- on account of payment of HUDCO loans. 4. That on the facts and in the circumstnaces of the case and in law, the learned A.O. erred in disallowing expenses of ₹ 60,00,000/- on account of provision interest of SRF funds provided by the Government of MP. 5. That on the facts and in the circumstances of the case and in law, th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for the assessee submitted that as the assessee has made provision for HUDCO loans of ₹ 1,91,00,000/-, he reiterated the submissions as made before the Ld. CIT(A). It is contended that assessee had taken a loan of ₹ 261.00 lakhs against the guarantee of Government of M.P. for the purpose of construction of houses and buildings for the police personnel of the Government of Madhya Pradesh as per Memorandum of Understanding with the Government. The Corporation had taken loans from HUDCO in the previous financial years and Government had to pay interest on loan after possession of scheme or projects for whom the funds were obtained. In the year 2008-09, HUDCO informed the assessee Corporation that the liability of outstanding loan was ₹ 261.00 lakhs and Corporation had to pay this. It was contended that the Government of M.P. directed the Corporation to pay the same. Ld. Counsel for the assessee submitted that by this direction of the Government, the assessee Corporation suffered loss as the liability, which was required to be discharged by the Government fastened upon the assessee Corporation. Ld. Counsel submitted that under these facts, the A.O. ought to have allow ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... paid by the State Government. But the State Government asked the appellant to pay from its own income. The appellant had made payment of ₹ 1,91,56,000/- on 29.9.2008 i.e. in F.Y. 2008-09 relevant to subsequent assessment year 2009-10 as a full settlement of the outstanding loan and interest of HUDCO requesting to HUDCO not to change interest on interest and for that the appellant made a provision in its books of account on 31.03.2008 i.e. in F.Y. 2007-08 relevant to A.Y. 2008-09. Considering these facts, it is clear that the appellant had made only a provision of Rs.l,91,56,000/- in its books of account on 3 1. 0 3.2008 for payment of liability of the State Government of M.P. As stated in the submission of the appellant that this amount was to be paid out of income of the corporation, thus, it is an application of income and not a deductible expenditure. Further, it is pertinent to note that the amount was paid in subsequent assessment year on 29.09.2008 and there was no question of any allowance of deduction in the year under consideration. The payment was also for the loan and, thus, not in revenue account. Accordingly, the AO was justified in making disallowance of provis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sed would from part of overall package for closure of the corporation entailing abolition of all the posts in the corporation. Out of the total amount released from SRF, Rs.l,55,00,0001- were utilized for the retirement of 67 employees voluntarily out of 215 employees who were on the rolls of the corporation at the time of introduction of VRS Scheme of the Govt. of M.P. The balance amount of Rs, Rs.l ,60,00,000/- was refunded to the Government of M.P. because the decision of liquidating the corporation was subsequently reviewed on February, 2004 that the corporation is to continue. The amount of Rs.l,55,00,0001- utilized for VRS was shown as secured loan in the books of the appellant as loan from SRF Funds. It may be noted that there was no stipulation or condition of charging interest on the amount which was utilized by the corporation on voluntary retirement of its employees as per VRS Scheme of the Government of M.P. Thus, there was no liability of interest per se on the amounts released by the State Government from SRF. Further, the appellant had never made a provision of interest since F.Y. 2000-01 when the fund was received. The appellant had not furnished any evidence that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt and facts of the case. The appellant had made a provision of RsJO,76,000/- during the year by giving a note in the final account that 'with a view to considering old outstanding recovery of various contractors, the corporation has made a provision of ₹ 30,76,000/- during the year'. The appellant had neither furnished details of party wise loans and advances for which provision was made considering the old outstanding recovery during assessment proceedings nor during appellate proceedings. The appellant had also not written off these amounts in its books of account as no evidence was furnished before the AO or during appellate proceedings to show that accounts of the debtors were actually written off. It may be noted that as per Explanation to section 36( 1 )(vii), provision for bad debts made in the accounts of the assessee is not an allowable deduction. The explanation reads as under: Explanation For the purposes of his clause, any bad debt or part thereof written off as irrecoverable in the accounts of the assessee shall not include any provision for bad and doubtful debts made in the accounts of the assessee. In view of the above, in my opinion ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Second, the appellant itself submitted that the construction of the community halls would be made out of its own earnings. Thus, it is an application of income as per the discretion of the management of the corporation and it was not an accrued liability wholly and exclusively for the purpose of business of the corporation. No actual expenditure was incurred during the year under consideration. The, business of the corporation is to construct houses and administrative buildings for police department on behalf of the Govt. of M.P. and the appellant takes supervision charges @ 12 % of the total construction cost incurred on the project/scheme. Thus, the provision made in the accounts for the year ended 31.03.2008 of ₹ 4 crores for community halls was not an allowable deduction in A.Y. 2008-09 and AO was justified in making the said disallowance. Hence, the disallowance of provision of ₹ 4 crores of police community halls is confirmed. 21. We find that the Ld. CIT(A) has given finding on fact that the decision relate to earlier year. However, we are of the view that the earlier decision taken in earlier year and the work executed in another year would be sufficient t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es which were undertaken in earlier years starting from 2000-01 and, hence, it cannot be said that the total amount of ₹ 1,77,70,000/- related to the A.Y. 2008-09 under consideration. It was also noticed from the ledger accounts that this provision was not an ascertained liability because in the subsequent period this was reduced to ₹ 95,01,857/- as on March, 2009. Moreover, it may be pertinent to note that as per MOU of the corporation with Govt. of M.P., all the costs incurred on any project would be borne by the State Govt. and the appellant corporation would be eligible for supervision charges of 12 % on the total cost of the project. Hence, the cost over run could not be the liability of the appellant. Therefore, the AO was justified in disallowing the said provision, which was not related to the year under consideration and was not liability of the appellant. Thus, the disallowance of provision of cost over run of Rs.I,77,70,0001- is confirmed. 25. We find that the Ld. CIT(A) disallowed this provision on the ground that it does not relate to the year under appeal. Considering the totality of the facts, we deem it proper and restore this issue to the file of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the appellant but it was incurred on behalf of the State Govt. recoverable from the government and, hence, cannot be charged as a deduction from the income of the appellant of supervision charges. Considering the facts and circumstances of the case, I am of the opinion that AO was justified in disallowing the provisions for contingency expenditure of ₹ 60,99,888/- and, therefore, the disallowance made by the AO of ₹ 60,99,888/- is confirmed. 29. Ld. CIT(A) disallowed this claim on the ground that in earlier year, no such corporation was made for contingency expenses. As stated by the assessee that this expenditure was earlier borne by the Government of M.P. and the Government of M.P. directed the assessee corporation to bear this expenditure. It is contended that this expenditure relate to execution of work. We are of the view that any expenditure related to execution of work as carried out by the assessee would be allowable expenditure. However, this fact is required to be verified whether such expenditure made for the execution of work? We therefore, restore this issue to the file of the A.O. to decide it afresh. 30. Ground No.9 is general in nature and needs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... letter along with copy of ledger had been submitted to the A.O. during the time of assessment proceedings. However, the A.O. had not considered the reply of the appellant. 6. During the appeal proceedings the assessment records of the appellant were called for from the A.O. It is seen from the assessment records that during the course of reassessment proceedings, the appellant had filed letter to the A.O. on 19.3.2014 in which it had been clearly mentioned that this amount of ₹ 50,01,000/- was paid to LIC on account of gratuity on 29.9.2008 before the due date of filing the return. In support of this, the appellant had given the copy of the ledger account and the final account. Therefore, the appellant had requested the A.O. to consider the deduction as it had been actually paid before the due date of return as per the provisions of section 43B. 7. Thus, looking to the facts of the case, it is seen that the appellant corporation had made payment of the amount of ₹ 50,01,000/- to LIC India on 29.9.2008 before the due date of filing of return. Therefore, as per the provisions of section 43B, this deduction is not disallowable and, therefore, this ground of app ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lf of Government. Therefore the interest accrued under the advances of said scheme is an Income of Government, and additions made by Ld. AO are unjustified and not tenable. Also Ld AO was unjustified to calculate interest accrued on FRD/TDR as per the form 26AS, an statements filed by bankers a proof of the TDS statement deducted. SUBMISSION OF ASSESSEE: The MP police Housing Corporation limited is a corporation setup by the Government of Madhya Pradesh, with the object of developing and constructing residential and administrative buildings, police station and other government offices for the Department of MP police Government of India. The Government of MP Central Government providing funds to the corporation under the various schemes of Police Force Modernization. The Corporation is charging a fixed percentage of the supervision charges as income for meeting out its establishment expenses. Therefore the fund raised by the corporation: is belonging to the Government of MP Central Government. To keep safe custody of the funds of the Government, the appellant corporation manages funds in various banks as short term deposits or saving /current account. It wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l of the affairs of the Corporation is vested under Board of Directors (BOD). But the BOD of the corporation is not empowered to use or apply the interest funds kept as above. It is a general principle of accounting that the income shall be in possession of the assessee. A person is owner of the income if it has power to utilize the same. In our case, the appellant corporation or its Board does not have any power or possession of the same income; they are working as depository of Government money. Therefore, interest accrued/eamed on Government money shall be deemed as income of Government. Also the earned interest shall be utilized by the Empowered Committee of Govt. of MP, for the purpose of the particular Scheme. Therefore the interest received by the Corporation is a diversion of income by an overriding title. The actual owner of the income is Government and hence it will be treated as diversion of income of Government by overriding title. By the order no. F-3- 29/08/B-3/2 dated 30/08/2010 the Government is owner of the sources of income; therefore income arisen from that source shall be treated as income of Government. Where by an obligation income is diverted before it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d. Therefore, the interest on the unsecured loans and advances provided by the Government shall not be taken/deemed as income of the Corporation, but it is an income of Government and corporation should kept the money under its custody as a trustee. The corporation is still showing the same accrued interest income as liabilities as per attached Schedule - 10 of the Final Accounts submitted in the final account. Diversion of income by overriding title - The assessee may be trustee of that Government fund but it cannot apply the fund as per his own will. The interest if any earned on this fund is also to be credited to that fund - It is therefore clear that funds stand diverted at the source and therefore this cannot be considered as an appropriation of income but it is expenditure. 3. As per the accounting notes referred in the Audited accounts and dually approved by the C AG, the Appellant Corporation has framed the policy as under; The funds provided by the Central Stale Govt. with the corporation are advances on Deposit Basis. As per the instructions received by the Govt., any accrual to the funds places on the Deposits of the Corporation is to be treated a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erest. The Ld. AO has passed two assessment orders on the same date pertaining to the AY _ 2010-11 2011-12 dated 14/02/2013 and assumption of calculation of interest were two different methods. In the year 2010-11, Ld. AO has taken interest income from Form 26AS and rejected the interest shown in the Audited books of The Corporation. However, in the AY- 2011-12, the Ld. AO has accepted the calculation of Interest Accrued accounted for in the books of accounts of the Corporation , and rejected the interest figure shown in the Form 26AS of the Income tax Department. The yearwise break up of interest in the books and 26AS is as under: ASSESSMENT YEAR Interest as per books of account Interest taken in Form 26AS of ITD Interest taken by Ld. A.O. as income from other sources 2010-11 1,462.93 2,016.60 2,016.60 2011-12 1,319.56 544.57 1319.56 It shows that the Ld. AO was biased in his approach and could not ad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d out at ₹ 14,62,93,361/-. The A.O. had picked up form No.26AS and adopted the interest of ₹ 20,16,62,336/-. It was further stated that the A.O. adopted the different interest for two different years. It is stated that the assessee is an autonomous corporation having own capital and sources of income. Entire management and control of the affairs of the corporation is vested under the Board of Directors but the Board of Directors of the Corporation is not empowered to use or apply the interest funds. It is further stated that a person is owner of income. It has power to utilise the same. In the case under appeal, the Board of Directors has no power or possession of the income. They are working as depository of government money. Therefore, interest accrued/earned on Government money shall be deemed as income of the Government. The interest so earned would be utilised by the empowered committee of Government of M.P. for the purpose of particular scheme. Therefore, the interest received by the Corporation is a diversion of income by an over riding title. 41. On the contrary, Ld. D.R. opposed the submissions. He submitted that income is required to be assessed directly as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee s assessable income was only the balance left after payment of the maintenance charges. It appears from the facts of the case, however, that there was a charge for the mainteance upon the properties of the assessee. This case also brings out correctly the principles laid down by the Judicial Committee that if there by an over riding obligation which creates a charge and diverts the income to some one else, a deduction can be made of the amounts so paid. 43. Further, reliance is placed on the judgement of the Hon'ble Gujarat High Court in the case of Gujarat Power Corporation Limited Vs. ITO. In that case, the Hon'ble Court has recorded the facts of the case in para nos.4 to 6 of the judgement and decided the issue vide para nos.25 to 27, which are reproduced as under: 4. The assessee company is promoted by the Government of Gujarat and the Gujarat Electricity Board with an object to augment power generating capacity in the State of Gujarat by attracting private sector partners or its own. The Government of Gujarat had sanctioned amounts of ₹ 1 crore and 4 crores towardes equity share capital of the assessee company. Such amounts were transferred to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Pradesh. The revenue has not placed any contrary binding precedent, therefore, respectfully following the judgement of the Hon'ble Gujarat High Court, we direct the A.O. to delete the addition. ITA 260/Ind/2015 (A.Y. 2011-12): 45. The assessee has raised following grounds of appeal in ITA No.260/Ind/2015: 1. That on the facts and in the circumstances of the case and in law, the findings of learned CIT(A) are bad and opposed to facts, equity and law and are, therefore, unsustainable in law. 2. That on the facts and in the circumstances of the case and in law, the learned A.O. erred in making a scrutiny assessment u/s 143(3) of the Act. 3. That on the facts and in the circumstances of the case and in law, the learned A.O. erred in making addition of ₹ 13,19,55,660/- on account of undisclosed income. 4. That on the facts and in the circumstances of the case and in law, the learned A.O. erred in making addition merely on the entries shown in the form 26AS. 5. Any other ground that may be deemed necessary at the time of hearing as the assessee craves its right to add, amend, or alter any of the grounds of appeal on or before the actual he ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... confirming ₹ 8,76,665/- made on account of prior period items debited in the P L account. Ld. Counsel for the assessee submitted that authorities below were not justified in making the addition. 52. On the contrary, Ld. D.R. supported the order of the authorities below and submitted that there is no evidence on record suggesting that the prior period expenses were crystalised during the year under appeal. 53. We have heard the rival submissions, perused the materials available on record and gone through the orders of the authorities below. We are in agreement to the authorities below that the assessee has not placed any material on record suggesting that prior period expenses were crystalised during the year under appeal. This ground of the appeal is dismissed. 54. Appeal of the assessee is partly allowed. ITA No.125/Ind/2017 (A.Y. 2013-14): 55. The assessee has raised following grounds of appeal: 1. That on the facts and in the circumstances of the case and in law, the findings of learned CIT(A) are bad and opposed to facts, equity and law and are, therefore, unsustainable in law. 2. That on the facts and in the circumstances of the case and in ..... X X X X Extracts X X X X X X X X Extracts X X X X
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